WHEN thinking about where you are today and where you want to be - many Australians don't know where to start in growing their wealth to secure their financial future.
Paying down debts, building investments and making adequate preparations for retirement are some of the key building blocks. This raises the inevitable question: how much should I save by retirement age?
The number generally quoted for the average Australian couple wanting to enjoy a normal standard of retirement, is one million.
That's how much you need so that, if you earn a conservative amount on your savings, you can pay yourself enough to live on.
One million dollars seems huge. It's also an estimate, taking into account every Australian, with assumptions built into it about inflation, your investments' earnings, how long you work and what age you live to. So don't be intimidated by one millions dollars.
Understand that superannuation doesn't just hinge on very large, far-off goals.
Future savings and building wealth now are also dependent on small things under your own control right now. Want to secure a bright financial future for yourself and your family?
Here are five levers that allow you to take control:
1. Spend less now
All retirement savings calculators factor your current household budget. Look at this closely: if you reduce your annual expenses from say $40,000 to $35,000, you save around $100 per week. Consider the impact of putting this into your super for 20 years.
2. Spend less later
If you reduce your retirement living standards slightly - because you're retiring later or you'll live in a cheaper area - consider how much you now need in super to reach your savings goal.
3. Make your money work harder
Is the money you put into super earning what it should? Inflation reduces the spending power of your savings by between 2% and 3% each year.
If all your savings are in cash, then you're not getting ahead under today's conditions. But if you invest in growth assets such as equities for at least 10 years, you can weather share market volatility and still make an average 7% to 8%. If you acknowledge that you'll live for more than 20 years after retirement, you are a long-term investor and your super should be weighted to long-term/high-return equities.
4. Make your money work smarter
In private investments, earnings are taxed at your top marginal income tax rate. But superannuation earnings are taxed at 15 per cent and draw-downs at zero. This also goes for retirement products such as pension accounts and annuities.
When your investments sit inside super, they go further.
5. Work longer
Use the 'retirement age' variation on a retirement calculator to see how you improve your position by working for extra years.
Be aware that 'transition to retirement' rules allow for a certain amount of part-time work while also drawing-down some super. Take advice on this - as you must do within the rules.
* MARK BOURIS is the executive chairman of Yellow Brick Road Wealth Management.
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